A nd Edition, (Updated: July 25, 2011)

Transcription

1 A nd Edition, 2008 (Updated: July 25, 2011)

2 A201 - T1-2

3 28 Taxation Concepts pertaining to Insurance of Persons The actual amount of assessable dividends 6 is grossed-up by 45% to arrive at a taxable assessable dividend, whereas other dividends are grossed-up by 25%, as were the dividends paid before An individual who receives a dividend can claim a federal dividend tax credit equal to 18.97% of the amount of the grossed-up assessable dividend and a federal tax credit of 13.3% of the amount of a grossed-up other dividend. In Québec, this credit is 11.9% for assessable dividends 7 and 8% 8 for other dividends. Table 1.3 illustrates the tax system for dividend income. Table 1.3 Tax effect of $100 in dividend income 9 Assessable dividends Other dividends Cash dividends $ $ Grossed-up dividends $ $ Tax at maximum rate 53% (29% + 24%) Federal and provincial $ $ Federal dividend tax credit ($145 x 18.97%) $ Provincial dividend tax credit ($145 x 11.9%) $ ($125 x 13.3%) $ ($125 X 8%) $ Federal abatement 16.5% federal tax $ 2.40 $ 3.23 Net tax $ $ After-tax dividends $ $ Table 1.4 compares the taxation applied to various types of investment income. 6. Dividend paid after March 23, Based on the Québec budget of March 23, % for other dividends paid before March 23, Dividend paid after March 23, 2006.

4 62 Taxation Concepts pertaining to Insurance of Persons 2.4. Taxation of a Life Insurance Policy Upon Disposition Disposition of a life insurance policy When there is disposition of a life insurance policy, it is important to determine if the disposition has resulted in a policy gain, independent of whether the policy was required before or after December 2, If there has been a gain, the gain is added to the policyholder s taxable income Transactions that trigger disposition In terms of tax law, disposition of a life insurance policy includes: Cancellation of the contract; Loss of exempt policy status; Absolute assignment of the contract; Policy surrender (including partial surrender); Maturity (endowment life insurance contract); Policy loans (after March 31, 1978); Policy lapse following non-payment of premiums (after the 60-day grace period provided under the Act); Policy dividend payments; Conversion of the policy into an annuity contract (except when the conversion is made through the same insurer and under a settlement option before December 2, 1982); When a policy last acquired on or after December 2, 1982 no longer meets the conditions for exempt policy status, and no measures have been taken within the 60-day grace period to have it re-qualify as exempt; and Certain transfers of ownership Transactions that do not trigger disposition The following transactions do not result in the disposition of a life insurance policy: Expiry of a life insurance policy acquired before December 2, 1982 or an ETP, following death; Disability benefits; A death benefit;

5 170 Taxation Concepts pertaining to Insurance of Persons Example Peter is 75 years of age and has an RRIF worth $150,000 that he purchased in The minimum amount that he must withdraw from his RRIF will be $11,775 (7.85% $150,000) Spouse s age If the holder of an RRIF is older than his or her spouse and would like to receive lower payments, the minimum withdrawal amount can be established on the basis of the spouse s age. Example Peter is 75 years of age and has an RRIF worth $150,000 that he purchased in His spouse is 72 years old. Peter decides to withdraw a minimum amount of $11,220 (7.48% $150,000) from his RRIF instead of $11,775 (7.85% $150,000). This amount represents the minimum based on his spouse s age Transforming RRSPs into annuities An individual who chooses to transform an RRSP into an annuity at maturity can choose between three types of annuities: A term certain annuity; A life annuity; A joint life annuity with a spouse Term certain annuities Term certain annuities are annuities payable over a defined period. A term certain annuity acquired with the capital of an RRSP is generally guaranteed up to the age of 90 (the period can be shorter). If the holder of the RRSP has a younger spouse, the spouse s age can be used to calculate the guaranteed payment period Life annuities Life annuities provide income until the death of the annuitant. It is also possible to receive guaranteed payments for a certain number of years (such as 10 years or 15 years). If the annuitant dies during this period, their beneficiary will receive a death benefit.

6 196 Taxation Concepts pertaining to Insurance of Persons The Old Age Security (OAS) pension and the Guaranteed Income Supplement (GIS) are universal public plans. The OAS pension is usually paid at 65 years of age. The GIS is paid over and above the OAS pension if the individual s or the couple s income falls within limits prescribed by law. The OAS pension is taxable, but the GIS is not. A deceased taxpayer is deemed to have disposed of all their property at fair market value immediately before death. At death, it is possible to bequeath an RRSP, a RRIF, a LIRA or a LIF to a legal or common-law spouse with no tax effect. This mechanism is generally called a tax rollover. When an RRSP is bequeathed to a child, the RRSP amount will be taxable as income in the hands of the child. Children who are minors can elect to spread the income by purchasing an annuity not to exceed 18 years. In order to reduce the tax payable by a deceased taxpayer, if the taxpayer had RRSP contribution room, contributions can be made to the surviving spouse s RRSP in the year of their death and no later than 60 days after the year of death. To help you better understand the concepts covered in Chapter 5, we recommend that you answer the questions provided in the self-evaluation exercise. After completing the self-evaluation, you may check your answers against the answer sheet provided at the end of the chapter.

7 Case Study 283 D) The policy gain realized by Mrs. Poniatowski in 2011 when she surrenders the $10,000 will be $2,043. In the case of a partial surrender of the policy, the taxable gain on the policy is equal to the proceeds of disposition less the proportional ACB of the interest in the policy that is subject to the disposition. Total cash surrender value: $59,000 Total ACB: $47,000 Proceeds of disposition (partial withdrawal): $10,000 The proportional ACB is therefore equal to the following formula (Section ): Proportional ACB = total ACB (proceeds of disposition of the partial withdrawal total cash surrender value) Proportional ACB = $47,000 ($10,000 $59,000) = $7,966 The taxable gain on the policy is therefore $10,000 $7,966 = $2,034. E) There is no taxable gain on the policy at the time of death for either Mrs. Poniatowski or her daughter Beatrice. The death benefit is not a disposition of the policy and there is no taxation for either the holder or beneficiary of the policy (Section ). F) No gain on the policy (Section ). Disposition of a portion of an interest in a life insurance policy acquired before December 2, 1982 will not trigger taxation as long as the cash amount is equal to or less than the policy s ACB. (It is worth noting, however, that the policy s ACB would probably be higher in cases where the policy was issued before December 2, 1982, since the rules for calculating the ACB are also different. See Section 2.3.). G) No. The life insurance premiums paid by Mrs. Poniatowski will not be deductible, since Mrs. Poniatowski does not pay these premiums in order to earn income but rather to set aside capital (Section ).

8 284 Taxation Concepts pertaining to Insurance of Persons PROBLEM 3 (Chapters 2, 3 and 4) In 2006, ABC Inc. has life insurance policies as well as critical illness insurance policies for each of its four shareholders. Each shareholder owns 25% of the company s shares. Each shareholder s death benefit amounts to $1,000,000 and their critical illness benefit amounts to $100,000. The company is the policyholder as well as the beneficiary, and the shareholders are the insureds for both the life insurance and critical illness insurance policies. The life insurance policies were purchased after 1982 and qualify as exempt policies. The ACB for each of these policies is $40,000. In 2006, one of the shareholders dies and the company receives the death benefit of $1,000,000. The amount is then paid to the shareholders (which comprises the three surviving shareholders and the deceased shareholder s succession, which now becomes a shareholder of ABC Inc.). This means that the three surviving shareholders and the deceased shareholder s succession each receive an equal portion of the death benefit. Unfortunately, another shareholder develops a critical illness. The company therefore receives $100,000 that it pays to the critically ill shareholder. Explain the tax treatment of the death and critical illness benefits for the company and then for the shareholders.

9 292 Taxation Concepts pertaining to Insurance of Persons PROBLEM 5 (Chapter 5) Paula Remington retired only recently. The capital amount in her RRSP account reached $500,000 in In that year, Paula turned 69 years old and transferred this capital amount into a registered retirement income fund (RRIF). Calculate the minimum amount that she must withdraw when she reaches 75 if each year she withdraws the minimum eligible amount. Also, calculate the maximum amount that she would be able to withdraw at age 75. What would that amount be if she had transferred the same capital amount into a life income fund (LIF)? To calculate the maximum amount, assume that Paula withdrew the maximum amount each year. To make this problem easier to solve, assume that the fund does not generate any income on the capital of $500,000. For LIF purposes, use the following factors set out in the Regulation respecting supplemental pension plans: age 69: age 70: age 71: age 72: age 73: age 74: age 75: Note that these factors are subject to change and are based on a reference interest rate. The factors used here are only an assumption. Note: In the 2007 budget, Canada s Minister of Finance announced that he would be making changes to RRIF rules, particularly with respect to the age when individuals must close their RRSPs, which changed from 69 to 71 years old. For purposes of this exercise, we will be using the rules in effect in 2006.

10 A-201 User Guide : Texas Instrument BA II Plus Calculator

11 USER GUIDE Texas Instrument BA II Plus Calculator April 2007

12 GENERAL INFORMATION The Texas Instrument BA II Plus financial calculator was designed to support the many possible applications in the areas of financial analysis and banking. 2

13 The explanations below will make it easier for you to use the calculator. By default, the calculator operates in financial mode. The ON/OFF key is used to turn the calculator on and off. The 2ND key is often used to access financial applications. Press this key when you want to apply the functions displayed in yellow at the top of the keys. The FORMAT feature lets you select the number of decimal points to be displayed by the calculator. If you want to display: a fixed decimal point, press 2ND and then FORMAT, enter a number from 0 to 8 to specify the number of decimal points, and then press ENTER. a floating decimal point, press 2ND and then FORMAT, enter the number 9, and then press ENTER. The number of decimals displayed will vary depending on the calculations up to a maximum of nine decimals. To perform the calculator exercises in this document, it is best to use a floating decimal point format. Setting the number of payment periods and interest-calculation periods in a financial calculation (the P/Y and C/Y functions). P/Y function: this function sets the number of annual payments. The default value is one payment per year. To change the number of annual payments, press the 2ND and P/Y keys, enter the required value, and then press ENTER (for example, 12 for 12 monthly payments). C/Y function: this function sets the number of interest-calculation periods. By default, the number of interest-calculation periods is the same as the number entered for the P/Y variable. To change it, press 2ND, P/Y and, and then enter the number of periods and press ENTER. Example where the C/Y differs from the P/Y: monthly payments on a personal loan on which interest is calculated quarterly (I, 4): 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period (12 months). 2ND > P/Y > > 4 > ENTER C/Y = 4 Enters a quarterly interestcalculation period (4 threemonth periods per year). N. B.: It is important to follow the sequence of entries without pressing any other key. 3

14 The BGN function lets you activate the beginning-of-period or the end-of-period payment. To understand the configuration of this function, simply press the 2ND and BGN keys. To the left of your screen, you will then see the END or BGN letters. To activate the beginning-of-period payment calculation, simply press the 2ND, BGN, 2ND and SET keys. The BGN indicator then appears in the upper-right area of the display screen. To return to END, simply repeat the 2ND, BGN, 2ND and SET sequence: the BGN indicator will disappear. The CE/C key clears the on-screen data without deleting any numerical values that have been entered. The CLR TVM function cancels the numeric values and calculation commands and resets the calculator s default financial values. Before performing each calculation, users are advised to cancel all previously used numerical values by pressing the 2ND and CLR TVM keys. These keys, however, do not affect the beginning-of-year payment (BGN) mode or endof-period payment (END) mode or the values attributed to P/Y and C/Y. Therefore, it is important to make sure that these values have been programmed before performing a calculation. 4

15 FINANCIAL CALCULATIONS Most financial calculations are carried out using the following seven keys: Financial keys N I/Y PV FV PMT CPT BGN These keys are used to designate or calculate: The number of periods. The nominal interest rate. The present value of an investment. The future value of an investment. The periodic payment of an amortized loan or a split annuity. Compute key. Indicates whether the calculations include the payments made at the beginning or at the end of each period. Note: By convention, the present value of an investment is a negative value. The calculator is programmed this way; therefore, in calculations of future values or per-period payments, if the present value is entered as a negative value, the future value or the value of the payments will be positive. The opposite is also true. It is therefore important to be thorough and refer to the calculator s user guide, if necessary. Sample calculation of the future value (FV) of a single payment Someone wishes to invest $4,000 in a registered retirement savings plan (RRSP) for a five-year period. Insurer A proposes an annual compound interest rate of 6%, whereas insurer B proposes a nominal rate of 5.95% compounded on a semi-annual basis. The following two tables should help you determine which insurer is proposing the best investment. 5

16 Insurer A CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 1 > ENTER P/Y = 1 Enters an annual payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 5 > N N = 5 Enters a five-year period. 6 > I/Y I/Y = 6 Enters an annual interest rate of 6%. 4,000 > +/ > PV PV = 4,000 Enters the present value of the investment. CPT > FV FV = 5, Calculates the final value of the investment. Insurer B CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 2 > ENTER P/Y = 2 Enters a semi-annual payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 5 > 2ND > xp/y > N N = 10 Enters the number of periods over five years > I/Y I/Y = 5.95 Enters a nominal interest rate of 5.95%. 4,000 > +/ > PV PV = 4,000 Enters the present value of the investment. CPT > FV FV = 5, Calculates the final value of the investment. The investment proposed by Insurer B returns a greater cumulative value, after five years, of approximately $9.73. Calculating the future value of an annuity A client would like to invest $2,500 per year over the next five years. He would like to know what the cumulative value of the investment would be in five years if the annual realized rate were 5% in a situation where the investment is made at the beginning of the year and in a situation where the investment is made at the end of the year. 6

17 $2,500 investment made at the beginning of the year CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > BGN > 2ND > SET BGN Activates the calculation of beginning-ofperiod payments. 2ND > P/Y > 1 > ENTER P/Y = 1 Enters an annual payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 2,500 > +/ > PMT PMT = 2,500 Enters the amount of the annual investment. 5 > N N = 5 Enters the number of periods. 5 > I/Y I/Y = 5 Enters the annual interest rate. CPT > FV FV = 14, Calculates the cumulative value of the annuity. $2,500 investment made at the end of the year CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > BGN > 2nd > SET END Activates the calculation of end-of-period payments. 2ND > P/Y > 1 > ENTER P/Y = 1 Enters an annual payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 2,500 > +/ > PMT PMT = 2,500 Enters the amount of the annual investment. 5 > N N = 5 Enters the number of periods. 5 > I/Y I/Y = 5 Enters the annual interest rate. CPT> FV FV = 13, Calculates the cumulative value of the annuity. Obviously, an investment made at the beginning of the year will result in a higher cumulative value (other variables being equal), as the interest will begin to accumulate on the very first day. 7

18 Calculating the payment of a personal or mortgage loan The process of calculating a personal or mortgage loan consists of: Determining the known variables; Entering the number of payment periods (P/Y) and the number of interest-calculation periods (C/Y); Calculating the unknown variable. Sample calculation of a personal loan repayment Mary wants to borrow $15,000 to purchase a new car, and she wants to repay the loan over a five-year period. If the bank demands a nominal rate of 6% compounded on a monthly basis, what would be the monthly repayment (end of period)? Known variables: - nominal rate: (6%,12) - term of the loan: five years (60 monthly payments) - capital borrowed: $15,000 - Number of annual payments: 12 - Number of interest-calculation periods: 12 The monthly repayment can be calculated using the following operations: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 5 > 2ND > xp/y > N N = 60 Enters the number of monthly payments over five years. 6 > I/Y I/Y = 6 Enters the nominal interest rate. 15,000 > +/ > PV PV = 15,000 Enters the amount of the loan. CPT > PMT PMT = Calculates the amount of the monthly payments. To repay this loan over a five-year period, the monthly repayment amount would be $

19 Sample calculation of a mortgage loan repayment Claude buys a home for $125,000 and makes a $40,000 cash downpayment. To finance the balance, the bank offers him an $85,000 mortgage loan at a nominal rate of 6% compounded on a semi-annual basis. What monthly payments will be required to repay this mortgage over a 20-year term? What will the mortgage balance be after five years? To answer these two questions, the known variables must first be determined: - nominal rate: (6%, 2) - term of the loan: 20 years (240 monthly payments) - capital borrowed: $85,000 The monthly mortgage repayment can be calculated using the following operations: CE/C > 2ND > CLR TVM 2ND > P/Y > 12 > ENTER 0 Resets the default values. P/Y = 12 Enters a monthly payment period. > 2 > ENTER C/Y = 2 Enters a semi-annual interestcalculation period. CE/C > CE/C 0 Exits the entry of the C/Y variable. 20 > 2ND > xp/y > N N = 240 Enters the number of monthly payments over a 20-year period. 6 > I/Y I/Y = 6 Enters the nominal interest rate. 85,000 > +/ > PV PV = 85,000 Enters the loan amount. CPT > PMT PMT = Calculates the monthly repayment amount. To repay this loan over a 20-year period, the monthly repayment amount would be $

20 The balance of the mortgage loan after five years is calculated using the following operations, after having computed the monthly payment of $605.36: Do not change the data already entered for the financial variables 5 > 2ND > xp/y > N N = 60 Enters the number of monthly payments over a five-year period. CPT > FV FV = 72,076,74454 Calculates the loan balance after 60 monthly payments. The balance of the mortgage loan after five years is therefore $72, In financial mathematics, it is often a good idea to double-check calculations. In this example, another way to calculate the mortgage balance after 5 years would be to calculate the present value of monthly payments of $ over 15 years, i.e., the remaining term of the loan. The balance of the mortgage loan after five years can be calculated using the following operations: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period. > 2 > ENTER C/Y = 2 Enters a semi-annual interestcalculation period. CE/C > CE/C 0 Exits the entry of the C/Y variable. 15 > 2ND > xp/y > N N = 180 Enters the number of monthly payments for the 15 remaining years. 6 > I/Y I/Y = 6 Enters the nominal interest rate > PMT PMT = Enters the amount of the monthly payments. CPT > PV PV = 72, Calculates the loan balance after 60 monthly payments. The balance of the mortgage loan after five years is therefore $72,

21 Self-Evaluation Exercise Question 1. Question 2. Question 3. You borrow $75,000 to buy a house and agree to repay the loan in 20 years at an interest rate of (6.5%, 2). How much lower would your monthly payment be with a (6%, 2) interest rate? a) $ b) $ c) $21.24 d) $24.21 e) $34.24 What nominal rate, compounded semi-annually, lets you double your capital in ten years (rounded off)? a) 6% b) 7% c) 8% d) 9% e) 10% You are thinking about purchasing a $10,000 bond maturing at par in nine years with annual coupons at the rate of 7%. How much will you have to pay if you want a compound annual return of 8%? a) $4, b) $9, c) $9, d) $10, e) $10,

22 Question 4. What will your mortgage loan balance be after four years if the following conditions apply (round off to the nearest dollar)? Amount of the loan: $110,000 Interest rate: (8%, 2) Term of the loan: 25 years with monthly repayments a) $103,361 b) $93,360 c) $83,953 d) $98,360 e) $100,630 Question 5. What is the cumulative value after seven years of a monthly investment of $500 (made at the end of each month) if the nominal rate is (9%, 12) (round off to the nearest dollar)? a) $48,213 b) $43,000 c) $53,000 d) $55,813 e) $58,213 12

23 Answer Sheet Answer 1. You borrow $75,000 to buy a house and agree to repay the loan in 20 years at an interest rate of (6.5%, 2). How much lower would your monthly payment be with an interest rate of (6%, 2)? a) $ b) $ c) $21.24 d) $24.21 e) $34.24 The correct answer is c). Reason: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period. > 2 > ENTER C/Y = 2 Enters a semi-annual interestcalculation period. CE/C > CE/C 0 Exits the entry of the C/Y variable. 75,000 > +/ > PV PV = 75,000 Enters the loan amount. 6.5 > I/Y I/Y = 6.5 Enters the nominal interest rate. 20 > 2ND > xp/y > N N = 240 Enters the number of monthly payments over a 20-year period. CPT > PMT PMT = Calculates the amount of the monthly payment. Do not clear the values of the financial variables 6 > I/Y I/Y = 6 Enters the second nominal interest rate. CPT > PMT PMT = Calculates the amount of the monthly payment. Therefore, $ $ = $

24 Answer 2. What nominal rate, compounded semi-annually, lets you double your capital in ten years (rounded off)? a) 6% b) 7% c) 8% d) 9% e) 10% The correct answer is b). Reason: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 2 > ENTER P/Y = 2 Enters a semi-annual payment period. CE/C > CE/C 0 Exits the entry of the C/Y variable. 10 > 2ND > xp/y > N N = 20 Enters the number of monthly payments over a 10-year period. 1,000 > +/ > PV PV = 1,000 Enters the present value of the investment. 2,000 > FV FV = 2,000 Enters the final value of the investment. CPT > I/Y I/Y = Calculates the semi-annual interest rate. Note: The values of $1,000 and $2,000 were chosen arbitrarily. Any value and double that amount would have given the same answer. Answer 3. You are thinking about purchasing a $10,000 bond maturing at par in nine years with annual coupons at the rate of 7%. How much will you have to pay if you want a compound annual return of 8%? a) $4, b) $9, c) $9, d) $10, e) $10,

25 The correct answer is c). Reason: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 1 > ENTER P/Y = 1 Enters an annual payment period. CE/C > CE/C 0 Exits the entry of the C/Y variable > FV FV = Enters the value of the bond at maturity. 9 > N N = 9 Enters the number of periods. 8 > I/Y I/Y = 8 Enters the annual interest rate. CPT > PV PV = 5, Calculates the present value of the bond. CE/C > 2ND > CLR TVM 0 Resets the default values. 700 > PMT PMT = 700 Enters the value of a coupon (7% $10,000). 8 > I/Y I/Y = 8 Enters the annual interest rate. 9 > N N = 9 Enters the number of periods. CPT > PV PV = 4, Calculates the present value of interest coupons. Therefore, the amount payable is $5, $4, = $9, Answer 4. What will your mortgage loan balance be after four years if the following conditions apply (round off to the nearest dollar)? Amount of the loan: $110,000 Interest rate: (8%, 2) Term: 25 years with monthly repayments a) $103,361 b) $93,360 c) $83,953 d) $98,360 e) $100,630 15

26 The correct answer is a). Reason: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period. > 2 > ENTER C/Y = 2 Enters a semi-annual interestcalculation period. CE/C > CE/C 0 Exits the entry of the C/Y variable. 25 > 2ND > xp/y > N N = 300 Enters the number of monthly payments over a 25-year period. 8 > I/Y I/Y = 8 Enters the nominal interest rate. 110,000 > +/ > PV PV = 110,000 Enters the loan amount. CPT > PMT PMT = Calculates the amount of monthly payments. After four years: Do not clear the values of the financial variables 21 > 2ND > xp/y > N N = 252 Enters the number of monthly payments over 21 years. CPT > PV PV = 103, Calculates the loan balance after 48 monthly payments. The mortgage balance after four years is $103,361. Answer 5. What is the cumulative value after seven years of a monthly investment of $500 (made at the end of each month) if the nominal rate is (9%, 12) (round off to the nearest dollar)? a) $48,213 b) $43,000 c) $53,000 d) $55,813 e) $58,213 The correct answer is e). 16

27 Reason: CE/C > 2ND > CLR TVM 0 Resets the default values. 2ND > P/Y > 12 > ENTER P/Y = 12 Enters a monthly payment period. CE/C > CE/C 0 Exits the entry of the P/Y variable. 7 > 2ND > xp/y > n N = 84 Enters the number of monthly payments over seven years. 9 > I/Y I/Y = 9 Enters the nominal interest rate. 500 > +/ > PMT PMT = 500 Enters the amount of the monthly investment. CPT > FV FV = 58, Calculates the cumulative value after seven years. The cumulative value after seven years is $58,